The inter-governmental treaty on stability, co-ordination and governance, known as the fiscal compact, is aimed at imposing stricter controls on national spending in the eurozone.

The agreement, which lies outside the main European Union treaties because of opposition from the UK, needed ratification by 12 of the eurozone’s 17 countries before it could come into effect.

It has been ratified by Austria, Cyprus, Germany, Estonia, Spain, France Greece, Italy, Ireland, Portugal, Finland and Slovenia as well as four non-eurozone countries which want to be bound by the new rules: Denmark, Latvia, Romania and Lithuania.

The fiscal compact was agreed at the height of turmoil in the eurozone at the European Council on 9 December 2011, with the final version endorsed by all EU member states apart from the UK and the Czech Republic the following month.

The compact stipulates that countries must introduce laws obliging them to have a balanced budget. National budgets must be in balance or in surplus, a rule that is met if the annual government deficit does not exceed 0.5% of gross domestic product (GDP).

The balanced budget rule must be incorporated into the member states’ national legal systems by 1 January 2014.

The European Court of Justice will check whether the balanced budget rule has been transposed correctly and in time and can fine countries up to 0.1% of their GDP – payable to the eurozone’s rescue fund, the European Stability Mechanism, in the case of eurozone member states – if they do not do it.

The granting of new financial assistance under the ESM is conditional on ratification of the fiscal compact and transposition of the balanced budget rule into national legislation.

The treaty also contains provisions on the co-ordination and convergence of member states’ economic policies and on governance of the euro area.

It also includes the requirement for eurozone summits to take place at least twice a year.